Victim of scam

[mircpa]

Hello everybody

I have an individual who is victim of a scam by an professional crook. This invididual loaned him 600k as investment in stock market, with a promise of 200% return within a year. It was too late when he found that this crook diverted money else where, who knows where he spend in gambling or cleared his previous debts, and lodged police/criminal complaint. Does any body has any idea, thought or throw some light on how to handle this situation in perspective with corporate tax filing, or direct me to IRS guidelines with regards this, individual loaned this money from corporate bank account and has cancelled checks, he is broke now, corporation has no money to pay taxes.

thanks for your help

[kcjenkins]

Perhaps he can get himself committed to a home for the terminally stupid?????

Seriously, this guy [your client] has committed theft from his corporation, or he has given himself a taxable dividend distribution from the corporation, and if the corporation has debts, he has a major problem there. He needs to talk to an attorney, right away, because his problem is not just taxes. While he is the victim of a theft, he also is going to owe taxes on the money he took out of the corporation, while the theft loss is gong to be personal.

You need to read the IRS Pub on theft losses, but you need to make sure that the client goes and talks to an attorney, because this is going to involve more than just that. A corporation is a separate legal entity for a reason, and that means that even if you own all the stock, you can not just take money out of the corp for your own use, without legal and tax consequences. If the corp can now not pay it's debts and it's taxes, he may have committed fraud against the creditors of the corp.

[Slappy Tax]

Thanks, KC. I was going to reply in the same way, but the whole thing is so stupid I didn't know where to begin. I echo what you said. This is more than just a case of, "What was I thinking?" Hopefully, the taxes that can't be paid don't include sales taxes or payroll taxes. If so, it won't be long before the fat begins to hit the fire, and your client will be personally liable for them. Please at least tell us that the professional crook wasn't from Nigeria. There's no magic wand for fixing this mixture of greed, money, and stupidity. And don't let Roni Deutch tell your client otherwise. I know she'd be licking her chops over someone with so much money and so little sense.

[JohnH]

What I don't understand is why the crook only promised a 200% return on the money in one year.

With someone this gullible & greedy, he should have promised at least 1,000% just to keep it interesting.

This situation reminds me of the dialogue from a somewhat confused HBO serires a few years ago (Samson is the carnival owner and Lyle is the local sherrif):

Samson: I'm telling you, Lyle, this operation's legit.

Lyle: I ain't never heard an honest man use the word "legit."

[Slappy Tax]

1000%? that would have been silly

[JohnH]

Yeah, you're right.

No reason to be unrealistic.

He should have only promised 900%

[RoyDaleOne]

First, there is a theft loss. Now who gets to take the loss?

If the Corporation invested the money in its name it gets to take

the loss.

Second, maybe the investment made by the stockholder acting as agent for

the Corporation (maybe, but harder to prove if necessary)

the Corporation still has a loss.

If the stockholder borrowed the money, then the stockholder has the loss.

The police report helps prove the loss.

[kcjenkins]

Well, given that he actually not only listened to someone who promised him a 200% return in one year, he gave the guy his money, he is obviously the sort who would believe that someone like Roni Deutch could get him off with pennies on the dollar. I just always wonder how people who are so dumb and so greedy got their hands on that much money in the first place? Inherited from a dotty old aunt who thought he was 'so sweet', perhaps?

It is hard to even feel sorry for someone who clearly let their greed overcome any sense they might have ever had.

[jainen]

>>who knows where<<

This is the part that makes me wonder if the investment was in fact a theft. Just because a promise wasn't fulfilled doesn't mean your client was a victim. He gave the money knowingly and willingly, and even if they find the guy there may not be any proof of criminal intent. As you say, who knows? If it WAS a crime, the client may be a co-conspirator since he at least has a ridiculous story about this investment and apparently embezzled the corporation's funds.

Without pretty good evidence of a theft, I would probably consider this a capital loss--and, as kc points out, ordinary income. Actually I wouldn't really worry one way or another, because after I told him that, he wouldn't let me do the return anyway.